Friday, November 12, 2010

The Ins and Outs of Incapacity

Most people think that having a trust is about controlling (to an extent) what happens to your assets after you die.  This is true, but a trust actually has a much broader scope: a trust can also protect and provide for your loved ones—and more importantly, it can protect and provide for you—if you should ever become incapacitated.

In basic terms, incapacity means that you are no longer able to make decisions for yourself. Sometimes it is easy to determine incapacity: the person is in a coma or unconscious and obviously unable to make decisions.  But sometimes it’s more difficult.  What about whether or not a person is able to make rational decisions?  What if someone is suffering from Alzheimer’s, Dementia, or even a severe mental illness... should that person be making important financial decisions?

It is important to include a discussion of incapacity in your trust, because this one word carries a lot of weight.  It is when you are incapacitated that your successor trustee will take over, when the agent nominated in your Healthcare Directive will get the authority to make health care decisions for you, and when your financial Power of Attorney will go into effect.  With so much hanging on a single word, it’s important to know exactly what that word means.

Every standard trust should have a definition of incapacity as determined by a court of law.  This means that you are deemed incapacitated when a court of competent jurisdiction determines that you are unable to legally handle your own affairs.  A really good trust will also include a definition of incapacity as determined by two physicians; which means that two independent, licensed physicians have examined you and have determined that in their opinion you are unable to effectively manage your property or financial affairs.

There are many reasons why you want to have more than just the standard definition of incapacity, the primary reason being that court proceedings can be lengthy and filled with red tape.  While your agent is spending days or weeks going through the legal process, your estate is languishing and your financial agent is powerless to take action on your behalf.  Giving two physicians the power to determine your incapacity will circumvent the red tape and prevent lengthy delays.

Call or come into our office for more information about incapacity and what it means in your trust or Healthcare Directive.